According to the Financial Stability Committee[1] (FSB), “shadow banking” can be defined as credit intermediation that encompasses entities and activities outside the banking system. Being outside the banking system, the institutions that operate in the “shadow banking” are not subject to the regulatory control to which financial institutions are.
These institutions cannot attract deposits from the public, so the funds they get are acquired in the short term and then are invested in the long term. From this difference in terms, the “shadow banking” earn an interest differential, which is its profit.
Some of the institutions considered potential entities operating in “shadow banking” are specialized financial establishments, investment funds, securitization SPV, investment vehicles, etc.
[1] Financial Stability Board (FSB) (2015): “Global Shadow Banking Monitoring Report 2015”.
